Sizzling Cottage Market Showing Signs of Cooling. Here’s Why

Traditionally, cottage country had been an ecosystem of affordable recreational properties for both middle- and high-income families. Families would purchase a cabin in the woods or a waterfront home to visit throughout the year and enjoy the sights and sounds of nature and a quieter pace. In the aftermath of the first wave of the coronavirus pandemic, many Canadians transitioned to a work-from-home environment, no longer confined to the office landscape from Monday to Friday, 9 a.m. to 5 p.m., prompting a shift in many Canadian real estate markets. Many people thought this trend would be the new normal on a permanent basis, prompting them to leave big cities and relocate to suburban or rural communities and, in many cases, different provinces. With solid equity levels in their pockets and historically low interest rates, many had made a move to small towns and purchased lower-priced properties. This became the new trend in cottage country, so many homeowners took advantage to sell at a higher price. As a result, nearly every segment of the Canadian real estate market enjoyed a boom, from detached houses to condominiums to cottages. And then, the Bank of Canada (BoC) started raising interest rates to fight inflation. This resulted in soaring mortgage rates, with the five-year conventional fixed-rate mortgage now above six per cent. While the belief is that the central bank is finished with rate hikes, monetary policymakers have signalled that interest rates will remain higher for longer. Is this good news or bad for Canada’s cottage market?

A Look at Cottage Country

But while the pandemic-era red-hot housing sector left many prospective homebuyers sitting on the sidelines, the slowdown from last year might persist in several markets, which might present homebuyers with an opportunity to dip their toes into the Canadian real estate market. And yes, this may include cottages. So, is the cottage market slowing down? If so, why? Let’s explore.

Last Year’s Sizzling Cottage Market is Showing Signs of Slowing Down: Here’s Why

The sizzling Canadian real estate market might be showing signs that it is continuing to cool off or, at the very least, stabilizing as interest rates begin to accelerate and seep into the broader economy. According to the Canadian Real Estate Association (CREA), national home sales tumbled 1.9 per cent in September, but they were up 1.9 per cent compared to the same time a year ago. Additionally, the benchmark Home Price Index (HPI) dipped 0.3 per cent from August to September. The BoC has indicated to the public that it could be finished raising rates, while investors are pencilling in higher for longer rates until sometime in the second half of 2024. Of course, this could result in various scenarios. The first is that this could lead to a hard landing for the Canadian economy (the country already slipped into a technical recession). The second is that the Canadian housing market could struggle to be resuscitated. The final possibility is a climate of stagflation: high inflation, slowing employment, and stagnating growth. Indeed, as the nation’s benchmark interest rate creeps up, fixed- and variable-rate mortgages have responded. However, a wide range of forecasts suggests that sales and prices will be revitalized in 2024. Whether these projections are realized or not remains to be seen. After some positive momentum, recreational properties are showing signs of decelerating in this rising-rate environment. Muskoka is a premier cottage hotspot in the Canadian housing market. So, many industry observers look to this small Ontario town to determine the trajectory of the broader cottage market. According to the Lakelands Association of REALTORS®, residential non-waterfront property sales were unchanged in September compared to the same time a year ago, totalling 354 units. In the first nine months of 2023, home non-waterfront sales fell nearly eight per cent year-over-year, totalling 3,456 units. On a historical basis, residential non-waterfront sales were close to 33 per cent below the five- and ten-year averages for this time of the year. Meanwhile, waterfront property sales skyrocketed at an annualized pace of 22 per cent in September, totalling 138 units. They were also down 5.1 per cent on a year-to-date basis, with 940 units exchanging hands. How about prices? The overall HPI composite benchmark price slipped nearly one per cent year-over-year in September to $717,200. The median sales price for residential non-waterfront property sales tumbled a little more than 2.1 per cent year-over-year to $627,739. In comparison, the median sales price for waterfront properties plunged close to ten per cent year-over-year to $938,000. “Sales activity for non-waterfront residential properties was flat on a year-over-year basis while sales for waterfront homes posted a modest increase,” said Matthew Lidbetter, the president of the Lakelands Association of REALTORS, in a statement. “However, demand for both types of properties continues to run below typical levels for this time of year and is expected to do so for the near future as potential buyers reassess their finances as they face headwinds from higher interest rates and economic uncertainty. Prices are also expected to remain lower compared to last year’s records but at least appear to be stabilizing.

” Rethinking Their Purchases

Indeed, interest rates are playing a considerable part in the recent trends. With more homeowners having to renew their mortgages and pay higher interest rates, many households who have purchased their residential properties in Cottage Country in the last few years might be reconsidering their choices. However, the other issue is that the post-pandemic economy has seen more companies adopt return-to-the-office mandates. As a result, with more companies reopening their office doors and requiring staff to either utilize a hybrid approach or install an on-site policy, they might be rethinking their purchase as they commute a couple of hours each way. Ultimately, if this is the case, they might need to ditch their beautiful chalets and cabins in favour of an urban dwelling again.

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